If you’re thinking about buying a short-term rental (STR), there may be no better time than now especially with the recent push in Congress to bring back 100% bonus depreciation for qualifying property assets.
Originally enacted under the Tax Cuts and Jobs Act, 100% bonus depreciation allowed real estate investors to immediately deduct a significant portion of their investment in the first year. While the benefit began phasing down in 2023, a new bipartisan bill introduced in the House aims to bring it back in full through at least 2025.
Why This Matters for STR Investors
Unlike long-term rental properties, short-term rentals can qualify for bonus depreciation without being classified as a traditional business, as long as you materially participate. This opens the door for many STR investors to deduct substantial portions of their property investments (often six figures or more) in the same year they purchase.
Here’s why this proposed policy is a big win for STR buyers:
1. Massive First-Year Tax Deductions
With 100% bonus depreciation, you can deduct the entire value of eligible personal property components (like furniture, appliances, landscaping, and even parts of the building) upfront instead of over many years. For a $500K STR purchase, this could mean over $100K in first-year write-offs.
2. Improved Cash Flow in Year One
By reducing your tax burden early, you free up more of your income to reinvest in the property, pay down debt, or expand your portfolio. For many buyers, this could mean covering nearly all of the first year’s operating expenses through tax savings alone.
3. A Unique Advantage Over Traditional Real Estate
STRs are in a unique position to benefit from this tax incentive. Long-term rentals usually require a cost segregation study and active participation as a business to qualify. STRs, however, often meet the test with a shorter average stay and material participation give everyday investors a tax advantage typically reserved for full-time real estate pros.
4. An Incentive to Buy Before Year-End
If the proposed 100% bonus depreciation is passed—and made retroactive to 2023 or applied through 2025—it creates strong urgency to purchase and place properties in service before year-end to maximize deductions. We may see increased STR buying activity in Q4 as investors try to take advantage.
Final Thoughts
Bonus depreciation isn’t just a tax perk, it’s a powerful investment tool that rewards smart timing and strategic property selection. Whether you’re a first-time STR buyer or expanding your portfolio, this policy (if passed) could significantly improve your ROI in the early years of ownership.
If you’re considering listing or buying a short-term rental, Rabbu is here to help. With a marketplace full of high-performing investment properties and a user base of 750K+ investors, we make it easier than ever to buy, sell, or analyze STR deals.
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Disclaimer: This post is for informational purposes only and does not constitute tax advice. Always consult with your tax professional to assess eligibility for bonus depreciation and how it applies to your specific situation.
